The 16-month probe into Europe's energy sector confirmed that there are still "serious competition problems" and that customers are suffering as a result.
Kroes highlighted the following market flaws uncovered by the sector inquiry:
- Market concentration: In countries such as France, Belgium, Poland and Hungary, incumbent operators reflecting the "old market structure of national or regional monopolies" continue to dominate around 95% of the gas market, thanks to their control over imports or domestic production. And, in the electricity sector, incumbent generators still "have scope to exercise market power by raising prices", the report indicates.
- Vertical foreclosure: The current system, in which incumbent companies are merely asked to operate their production and supply activities through legally separate entities, means that those controlling the network pipelines can continue to be active in the supply sector. "This constitutes a major obstacle to new entry and also threatens security of supply," states the report. Network operators are suspected of limiting effective access to new market entrants and of favouring their own affiliates in the supply sector, said Kroes.
- Chronic under-investment in the network: Vertical integration also leads to a situation where investment decisions are not taken in the interest of the network, but on the basis of incumbents' own supply interests. In Italy, for example, the national competition authority found the incumbent network operator ENI guilty of abusing its dominant position by deliberately stopping an investment project in order to benefit its supply branch by depriving competitors of access to more capacity.
Remedies:
- Full ownership unbundling:
Commissioner Kroes said that breaking companies into production and distribution operations would allow other companies easier access to distribution networks, increasing competition. The Commission’s report also states that "full ownership unbundling is the most effective means to ensure choice for energy users and encourage investment".
If accepted by the Council, it would force large companies like Germany's E.On or Electricite de France SA to split up so that businesses that generate and supply electricity would not also own the pipes and wires.
In Britain, separation of the gas supply industry from the pipeline business, has led to a huge increase in infrastructure investments.
But this proposal is unlikely to win support from countries such as France and Germany, which claim that maintaining strong "national champions" is the only way to reduce the EU's dependence on Russian gas. Nevertheless, so far, national champions have shown no sign of doing a better job of securing energy supplies. Gaz de France and Eni of Italy actually signed long-term contracts with Russia’s Gazprom last year, thereby making the EU even more dependent on Russian supplies.
- Independent System Operators:
France and Germany are likely to favour the Commission's alternative proposal, in which energy suppliers would still be allowed to own the infrastructure, but it would be managed by separate companies, called independent system operators.
- Applying competition law:
Kroes said that that she would make full use of powers available to her under anti-competition legislation to act against firms. This means certain companies could face large fines.
In particular, she stressed that she would be seeking out large firms colluding to share out markets, which the report identifies as "one of the most serious threats to competition".
She also warned that, even if the Commission's proposal on full ownership unbundling is not accepted, the Commission already has the power, under current competition law (Regulation 1/2003) to impose a break-up if a company’s structure creates a market abuse. The Commission has nevertheless so far never taken a decision to split a company.
